What to Consider Before Investing?
Whether you have $20 or $200,000 to invest, the objective is the same: to make your money grow. However, based on your investing style and how much money you have, the means of investing vary. As we have discussed before, your most important asset is your time, not your money. If you invest effectively enough, you could conceivably live off the earnings from your investments!
Here are 4 tips that every investor should consider before investing:
Before investing, you should know your purpose and the likely time in the future you may have need of the funds. If you are likely to need your investment returned within a few years, consider another investment. The stock market with its volatility provides no certainty that all of your capital will be available when you need it. By knowing how much capital you will need and the future point in time when you will need it, you can calculate how much you should invest and what kind of return on your investment will be needed to produce the desired result.
It’s a basic rule of investing that to improve your chance of a better return you have to accept more risk. But you can manage and improve the balance between risk and return by spreading your money across different investment types and sectors whose prices don’t necessarily move in the same direction. Diversification can help you smooth out the returns while still achieving growth, and reduce the overall risk in your portfolio.
Avoiding high-risk investments
Avoid high-risk investments and products unless you fully understand their specific risks and are happy to take them on. Only consider higher risk products once you’ve built up money in low and medium-risk investments.
In the short term, stocks tend to be volatile. Trying to predict the market’s short-term movements is not only impossible, it’s maddening. Too many investors are still focused on the popularity contests that happen every day, and then grow frustrated as the stocks of their companies do not move. Be patient, and keep your focus on a company’s fundamental performance. In time, the market will recognize and properly value the cash flows that your businesses produce.